Raytheon Wins $349M Navy Deal to Support Tomahawk Missiles

Raytheon Company RTN recently secured a $349-million contract related to the Phase 2 of the Maritime Strike Tomahawk Rapid Deployment Capability. The contract was awarded by the Naval Air Systems Command, Patuxent River, MD.

Majority of work related to the deal will be executed in Tucson, AZ, while the entire deal is scheduled to get completed by February 2023. Raytheon will utilize fiscal 2019 research, development, test and evaluation (Navy) funds for completing the task.

Advantages of the Tomahawk Cruise Missile

The Tomahawk subsonic cruise missile is used for deep land attack warfare, designed to fly at extremely low altitudes at high subsonic speeds and piloted over an evasive route by several mission-tailored guidance systems. The Naval Strike Missile is a long-range, precision strike weapon that can find and destroy ships at distances up to 100 nautical miles away. The stealthy missile flies at sea-skimming altitude, has terrain-following capability and uses an advanced seeker for precise targeting in challenging conditions.

Raytheon's Tomahawk missiles can be launched from a ship or submarine and fly into heavily defended airspace more than 1,000 miles away to conduct precise strikes on high-value targets. A major improvement to the Tomahawk is network-centric warfare capabilities, using data from multiple sensors such as aircraft, UAVs, satellites, foot soldiers, tanks and ships to find its target. It will also be able to send data from its sensors to these platforms.

What Favors Raytheon?

Increasing geopolitical tensions across the globe have prompted nations to strengthen their defense systems manifold, especially missile defense systems. To reap the benefits of this situation, Raytheon has started focusing on the modernization for its Tomahawk Missiles.

Going forward, Tomahawk missiles will be upgraded with enhanced maritime strike capabilities. Moreover, these are already integrated with the vertical launch system (VLS) of U.S. Navy ships, without any costly delays. Such upgrades are expected to boost demand for Raytheon’s Tomahawk missiles and other associated services. This, in turn, is projected to usher in more contracts, like the latest one.

Moreover, the fiscal 2020 U.S. defense budget includes a spending plan of $13.6 billion for varied missile defense programs. The aforementioned developments along with the favorable budget allocation are expected to benefit various missile makers, including Raytheon.

Price Performance

Shares of Raytheon have gained 2.2% in the past three months compared with the industry’s growth of 9.5%.

Zacks Rank & Key Picks    

Raytheon currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same space are Aerojet Rocketdyne Holdings AJRD, Teledyne Technologies Incorporated TDY and Transdigm Group Incorporated TDG, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne came up with average positive earnings surprise of 25.46% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has risen 13.8% to $1.90 over the past 90 days.

Teledyne Technologies pulled off average positive earnings surprise of 9.26% for the trailing four quarters. The Zacks Consensus Estimate for 2019 earnings has moved 6.42% north to $9.95 over the past 90 days.

Transdigm Group delivered average positive earnings surprise of 10.71% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 5.9% to $17.99 over the past 90 days.

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